Uncertainty for new homes deals

Nov 14 2007 by Tony McDonough, Liverpool Daily Post

Extra caution is slowing sales in the new homes market, as Tony McDonough reports

LAST week, housebuilder Redrow became the latest company in the sector to report uncertainty in the new homes market.

Despite hopes the UK could ride out the global credit crisis caused by the collapse of the US sub-prime mortgage market, strong evidence is now emerging that both lenders and potential buyers are adopting a much more cautious approach.

This week, the picture appeared to darken further when figures from the Royal Institution of Chartered Surveyors (RICS) revealed prices in October fell at their fastest pace since July, 2005.

Redrow, originally started by Liverpool-born Steve Morgan, said it had seen only a modest seasonal uplift in reservation rates, and it expected to legally complete on about 2,000 homes in the first half of its financial year, which would be down from 2,214 in the same period last year.

The tone struck was similar to that from Bovis Homes and Taylor Woodrow, who in the days previous had also reported they predicted a slowdown in the number of new homes they expected to sell in the coming months.

Speaking at Redrow’s AGM at Ewloe, near Chester, chairman Alan Bowkett said: “Customers appear to be waiting to assess the prospects for both the housing market and mortgage interest rates, and lenders are taking a more cautious view as regards lending criteria. We currently expect the group’s first half legal completions to be approximately 2,000 homes.

“Until we can determine the extent to which the housing market will be affected by the prevailing conditions it is difficult to assess the likely outturn for the year to June, 2008.”

Companies are saying they believe the downturn in sales will amount to a tempor- ary blip and that they expect sales to pick up again in the spring, but that could repre- sent more hope than expectation. Towards the end of last week, Britain’s biggest mortgage lender Halifax reported that house prices had fallen for the second month in a row during October.

The decline followed a drop of 0.6% in September, and is the first time that prices have fallen for two consecutive months since April and May, 2005, Halifax said.

But the group stressed that the falls were a “typical feature” of a more subdued housing market, and were not signs of a wider crash.

It said the market was slowing in response to the five interest rate rises seen since August last year, adding that a sound economy and a shortage in the number of homes for sale would help to support prices.

A similar pattern of house price growth was seen between July, 2004, and June, 2005, when the cost of property rose during six of the months and fell in six of the months as the market reacted to hikes in the cost of borrowing in 2004.

Martin Ellis, Halifax chief economist, said: “The rise in interest rates since August last year and negative real earnings growth so far this year are curbing housing demand, leading to a slowdown in both price growth and activity.

“The UK economy is in a strong position. Sound market fundamentals, including high levels of employment and a shortage in the number of properties available for sale, will continue to support house prices.”

The Royal Institution of Chartered Surveyors said the cost of property fell at its fastest rate for two years during September, while the number of people looking to buy a new home dropped for the 10th month in a row.

Howard Archer, chief UK and European economist at Global Insight, said: “Most data and survey evidence are pointing to weakening housing market activity and cooling prices in the face of slowing activity, increased affordability pressures and tightening lending practices.

“We expect these factors to increasingly bite over the coming months.”

He said he expected house prices to “flatten out” for an extended period of time, adding that as long as the economy did not slow sharply, prices should be supported by a lack of supply.

This more optimistic view was echoed by James Kersh, director of Merseyside estate agency chain, Sutton Kersh, who said that while there was a slowdown in the market, demand for family homes remained healthy.

‘THERE has definitely been a bit of a turndown as a result of the credit crunch and we have seen a downturn in sales,” he said. “But we don’t see it as too much of a negative thing because I think most of us accepted that the market had too cool off at some point.